Showing all articles tagged: planning


CSF/CQ Mashup: Firm Foundation Building Block Checklist ...

A good business venture plan will address each of the issues in this "checklist". A good business venture planning team will have good strategies and tactics to address each of these areas. A healthy business venture will continually address and iterate and improve upon each of these areas ... CSF/CQ Mashup





Venture Scorecard

Just as people have periodic health checkups where a physician examines a variety of elements to determine the overall condition of the individual, so too can a venture, company, business go through a similar process. Here are 30 categories to determine the strengths and weaknesses of an venture. This is also a good checklist for early venture planning and validation research.


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Financials... Calibration

1] Start with a "Use of Funds" list with three key figures: minimum funding to get your venture off the ground and test the waters, optimal to hit stability (self-funded, break-even?), and maximum (move fast to grab market share before others can do so). In the example below, this company optimal number is $140K. You DO need a chart that clearly explains your use of funds. Yes, you should include salaries to the key employees. And you should know how long it will take to get to stable ... the money will come from a combination of sales revenue and your start-up funds.

2] When you know your optimal start-up funding number, subtract the amount that the founders will contribute. This does NOT have to be a big number, but should show some level of commitment from the founders, albeit modest. In the case below, the founders are committing $40K, so the company needs to raise $100K from investors.

3] Early stage investors are typically looking to acquire 20 to 30% of the company. In the example below, this company is proposing selling 25% of their venture for $100K from investors. So if everything goes their way, this startup will have $140K cash committed. The $100K from the investors is 25% of the company, the company needs to be worth $400K total. Therefore, the business plan (AND the team that goes with it) must be worth $260K. Will your plan be worth $260K. YES, it CAN be ... no joke. Is it easy. No, it's not. Takes a lot of work, but you and your team CAN do it.

4] To attract investors to this venture, they want a significant return on their investment to compensate for the very high risk they are taking putting money into something that at this point does not exist. It is a startup, NOT a done deal! So they are typically looking for a return on their investment in about 5 years of 10x to 20x ... Yes, 10 to 20 TIMES their investment. That is roughy 50% to 80% ANNUALIZED! A whole lot more than what the no-risk bank would give them, or the typical 10% annualized return from Wall Street. Where does this return come from? The value of your venture in 5 years will be greater than what it is today. How much greater ... 10 to 20 times! In the example below, the venture valuation goal in year 5 is 20 times startup ... $8 million. That is a GOAL for the company, but the company has 5 YEARS to make it happen. YES, it CAN be done.

5] Rough estimate, if this company needs to be worth $8M in 5 years, its revenue for that 5th year should be in the ballpark of $8 million. Yes, valuation of the company AND revenue are both about the same. ROUGH estimate, but a reasonable one to use to CALIBRATE your financials. If this company is going to generate $8M of revenue in year 5, how many "cookies" will it have to sell? A lot! A whole lot! But it also has 5 YEARS to make it happen.

6] Suggest you use this process to APPROXIMATE and "CALIBRATE" your financials. Now ... this process has a lot of assumptions. A WHOLE lot of assumptions. The most fundamental assumptions is that this company has been managed well during this 5 year period. No funny business. Good cash flow, good balance sheet, no major down-side issues like getting sued for patent infringement, et al. GOOD management. Legal, moral, ethical. YES, that IS how you will manage your venture.

7] The numbers below favor the INVESTOR. A 20x return is on the high end of expectations for a good, solid business plan and a good, solid team. Less than 20x is more favorable to the startup team. Less than 10x is minimizing the risk of your startup and prospective investors will think you're getting cocky. More that 20x and the startup team is telling potential investors that they think risks are REALLY high. The range to target is 10x to 20x ... the risk-return multiplier. "Calculate" (an estimate, really) this number LAST. If it's between 10 and 20, nice!!

8] Everything here is subject to change, and likely to have "exceptions" for this or that. Every investor looks at things a little differently. And every venture IS different, even if they are similar. So get used to investors and judges and mentors and advisors giving you different advice and perspectives. There are multiple paths to success. Be careful not to stray too far from your chosen highway! The biggest money issues I've seen are 1] the numbers don't "fit" together, and 2] the numbers are way outside the "rational ballpark".

9] Let me know however I can be of help to you ... jj

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Plan ... How to Write an Effective Business Plan

  1. Start with a clear, concise executive summary of your business. Think of it like an elevator pitch. In no more than two pages, billboard all the important stuff. At the top, communicate your value proposition: what your company does, how it will make money and why customers will want to pay for your product or service. If you are sending your plan to investors, include the amount of money you need and how you plan to use it. You have to know the whole picture before you can boil things down, so tackle the summary after finishing the rest of your plan.
  2. Next, establish the market opportunity. Answer questions like: How large is your target market? How fast is it growing? Where are the opportunities and threats, and how will you deal with them? Again, highlight your value proposition. Most of this market information can be found through industry associations, chambers of commerce, census data or even from other business owners. (Be sure to source all of your information in case you are asked to back up your claims or need to update your business plan.)
  3. While you may have convinced yourself that your product or service is unique, don't fall into that trap. Instead, get real and size up the competition: Who are they? What do they sell? How much market share do they have? Why will customers choose your product or service instead of theirs? What are the barriers to entry? Remember to include indirect competitors--those with similar capabilities that currently cater to a different market but could choose to challenge you down the road.
  4. Now that you've established your idea, start addressing the execution ... specifically, your team. Include profiles of each of your business's founders, partners or officers and what kinds of skills, qualifications and accomplishments they bring to the table. (Include resumes in an appendix.)
  5. If potential investors have read this far, it's time to give them the nuts and bolts of your business model. This includes a detailed description of all revenue streams (product sales, advertising, services, licensing) and the company's cost structure (salaries, rent, inventory, maintenance). Be sure to list all assumptions and provide a justification for them. Also, include names of key suppliers or distribution partners.
  6. After all of that, one big question still remains: Exactly how much money does your business stand to make? More important, when will the cash come in the door? That's why you need a section containing past financial performance (if your company is a going concern) and financial projections.
  7. Three-year forward-looking profit-and-loss, balance sheet and cash-flow statements are a must ... as is a break-even analysis that shows how much revenue you need to cover your initial investment. [Jim 2 cents: make clear these are objectives for your venture, not just "projections" of what might happen!]
  8. For early stage companies with only so much in the bank, the cash-flow statement comparing quarterly receivables to payables is most critical. "Everyone misunderstands cash flow," says Tim Berry, president of business-plan software company Palo Alto Software. "People think that if they plan for [accounting] profits, they'll have cash flow. But many companies that go under are profitable when they die, because profits aren't cash."
  9. After you've buffed your plan to a shine, don't file it away to gather dust. "A business plan is the beginning of a process," says Berry. "Planning is like steering, and steering means constantly correcting errors. The plan itself holds just a piece of the value; it's the going back and seeing where you were wrong and why that matters."

[From Mary Crane, Forbes.com]
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Venture Hypothesis Outline ...

  1. Title slide or page ... venture concept name, team members, 3-word concept summary
  2. Opportunity ... the problem, market analysis, first customer(s)
  3. Solution and venture concept ... products and services, competitive advantage
  4. Business model ... how the venture will make money
  5. Marketing and sales strategies ... how the venture will attract customers
  6. Product development and operations strategies ... how the venture will develop and deliver solutions to customers
  7. Team and organization ... the current team and what do they do, advisors, team members to be added
  8. Risks and variations ... downside and upside risks, timeline and tolerances
  9. Financial model ... estimate of units sold, average selling price, revenue, expenses, margins, and EBITDA for first 5 years; key assumptions; significant startup expenses
  10. Validation plan ... how the hypothesis will be validated

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Business Flow Structure ...

1 ... Define what is happening in each of the seven major functional areas of the venture.
2 ... Define what is happening in each of the 14 links between the functional area.

Jim Jindrick

You can send Jim Jindrick a message here: TextJim.VentureNotebook.com Jim's books are available here: Amazon.com/author/JimJindrick

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